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We’re Scaring Ourselves Into Bank Runs Now
On Friday morning, while documenting what was shaping up to be a rough session for Deutsche Bank, I wrote that, "sharp moves in the shares and CDS precipitated the usual social media cacophony and accompanying five-alarm coverage blaze at mainstream financial news outlets."
Of course, it's possible the causality runs the other way -- that is, it's possible the never-ending mainstream news coverage and accompanying social media frenzy are undermining confidence, and that's feeding market moves w
it’s not only psychology. here in Germany the banks do not pay any interest on the money you hold with them. on the contrary, many of them actually charge you for holding the account. hence, there’s simply no reason to hold any substantial amount in the bank
Cue up the “pouring gasoline on a fire ” analogy. Perhaps this means that that panic will subside just as fast. Jim Bullard apparently thinks this is the likely outcome.
Beyond the press desperately trying to “explain” the turmoil and gain notoriety with their doomsday calls, there is some serious money betting on that things unwind further:
https://finance.yahoo.com/news/short-sellers-step-bets-against-145752244.html
I’d argue the trade you’re talking about is completely rational and fundamentals-based. I don’t see anything “wrong” with that at all. That trade has multiple fundamental pillars. Not saying I would or wouldn’t recommend it, just that I don’t think “mass bank runs” is going to decide whether it works or not. Regional bank stress certainly helps make the case and may well be the factor that makes it go from “good idea” to “slam dunk,” but I wouldn’t describe it as some opportunistic “jump on the bank stress” bandwagon trade. I just think it’s a thesis that makes sense to a lot of people
Agreed, sir.
Among the languages I have learned, English is better sounding than most, though there are too many “r”s and “t”s. The English do not pronounce the “r”s, and swallow some of the “t”s. I think it sounds better than the US version. On the other hand, my very own mother tounge just sounds much more horrible to me after 50+ years, with too many “sch” “ch” “t” sounds and words that stop suddenly with “k”. German is also not very nice to the ear. I like Spanish (Castillian). Just enough “h” (as in “high” to give it some ruggedness, and in Latam they don’t even have that.
Well said Mr H. Cable News/Financial Media sells hype and humans crave an emotional charge. The political views on cable news are supercharged with indignant emotions also regardless of where they are on the political spectrum.
The playbook for speculators appears to be short the stock of a marquis SIFI bank that has a chequered reputation, and then bid up their CDS in a fairly illiquid CDS market on a Friday, when investors are more likely to sell going into the weekend and ask questions later. The financial media builds the negative momentum.
Yes. The issue is that the financial media jumps on these stories immediately, to “capture the move,” as it were, and then maybe/sometimes gets around to explaining the “why” later, assuming they can figure it out.
I added three short sentences to this article to account for subsequent reporting that suggested hedge funds were targeting DB, but the thing is, the media didn’t get around to reporting that until after European markets were closed. At that point, it was too late.
I’m not “implicating” the media. Obviously, you have to report the news if you’re… well, if you’re the news. That’s kinda the whole thing. If you’re a news outlet and you don’t report news, then what are you doing all day, right?
My point is just that in my opinion, there needs to be a little bit more in the way of rigor to be sure you’re not, as a media outlet, creating the news — to be sure you’re not looking at yourself in the mirror, as it were.
Your point about dysfunctional mainstram media is well taken and my understanding is The Donald leverages heavily the media’s “dog sees squirrel” inability to think before rebroadcasting (which is not the definition of reporting/journalism).
Mainstream media is in the business of selling soap powder by capturing eyeballs. One captures eyeballs more readily by lighting hair on fire than by trying to split it, so from my perspective what mainstream media is doing is totally functional given their business model.
What would be dysfunction is if Walt started lighting HIS on fire because he is in the business of selling thoughtful balanced analysis. If hair is involved, its about parting it, not splitting it. That’s why we pay him a few bucks a month. Just like our barbers.
What is also dysfunctional, in my opinion, is the vast number of people who think they are getting a barber, when what they are getting is an endless supply of gas and a match.
Very human though…
H, if you’re ever bored and want to get a comedian’s take on this subject, check out The Day Today, and specifically an episode called Magnifievent where the presenter incites a war between HK and Australia. British comedy at its best.
https://www.federalreserve.gov/releases/h8/current/
Fed’s def’n of “large” (top 25 by domestic assets) reaches all the way down to regionals with with $70BN ish assets. So it is the SIFIs plus the larger regionals.
Half of net deposit outflow in two weeks of Mar 8 and Mar 15 was foreign-related (CS?), and all of net outflow in one week of Mar 15 was. In the two weeks, large banks took in net $65BN, +0.6% of deposit base, probably almost all went to the majors. Small lost net -$113BN, which is only 2% of deposit base. Unless outflow really accelerated last week, I don’t really see a general bank run here. Too copacetic? Regionals were almost all up today, ahead of the weekend. Still some names down -30% or more L1M.
I remember in 2007/8 thinking that a few chancers taking out liar loans to build gaudy second homes in Florida was not a plausible doomsday scenario. In the IB where I worked, that was the consensus view right up until we were all working weekends trying to save our skins. The stakes are much higher now but the same complacency is there for all too see. This time the prevailing view is that ‘banks are much better capitalised’. QT is a far, far bigger catalyst than sub-prime ever was. I’m jumping on the doomsday train, at least in my head.
I went through similar at a hedge fund. I also remember the summer of ltc sitting on a bond desk and listening to the overhead when markets shut down, but things worked out quickly. It can go either way, but it is foolish to think it could not be a big deal.
Wasn’t it Deutsche Bank that lent Donald Trump something like $18 billion? (Asking for a friend.)